Question

Interest Expense Miscellaneous Expense 1,000 600 $346,300 $346,300 Prepare the closing journal entries at the end of the fiscal year, June m 4-2 e income statement ent of retained gs, classified balance closing entries, and losing trial balance 3-5,7) Credits $ 12,500 15.000 The adjusted trial balance for Denver Architects, Inc., follows. DENVER ARCHITECTS, INC. Adjusted Trial Balance December 31, 2018 Debits $ 90,000 Cash 20,000 Accounts Receivable 200 Interest Receivable 4.000 Notes Receivable 960 Prepaid Insurance 2.400 Prepaid Rent Supplies on Hand 600 Equipment 60.000 Accumulated Depreciation Equipment Buildings 140,000 Accumulated Depreciation-Buildings Land 56,240 Accounts Payable Notes Payable Interest Payable Salaries Payable Capital Stock Retained Earnings, January 1, 2018 Dividends 40.000 Service Revenue Insurance Expense Rent Expense 1.920 Advertising Expense 9,600 Depreciation Expense-Equipment 1.200 Depreciation Expense Buildings 2.500 Supplies Expense 3,000 2.280 Interest Expense 150,000 Interest Revenue 750 60,000 10,000 750 7,000 100,000 20.200 360,000 Salaries Expense $ 585,650 200 $ 585,650 a. Prepare an income statement. b. Prepare a statement of retained earnings. e. Prepare a classified balance sheet. d. Prepare the closing journal entries. e. Show the post-closing trial balance, assuming you had posted the closing entries to the general ledger 178 Part 2 Processing Information for Decisions and Establishing Accounting Policy

Answer 1

Credit $360,200 $960 DENVER ARCHITECTS, INC. Adjusted Trial Balance December 31, 2018 Account Titles Debit Cash $90,000 Accounts Receivable $20,000 Interest Receivable $200 Note Receivable $4,000 Prepaid Insurance Prepaid Rent $2,400 Supplies on Hand $600 Equipment $60,000 Accumulated Dep. - Equipment Buildings $140,000 Accumulated Dep. - Buildings Land $56,240 Accounts Payable Notes Payable Interest Payable DENVER ARCHITECTS, INC. Income Statement For Year Ended December 31, 2018 Revenues: Service Revenue $360,000 Interest Revenue $200 Total Revenues Expenses: Insurance Expense $1,920 Rent Expense $9,600 Advertising Expense $1,200 Dep. Exp. - Equipment $2,500 Dep. Exp. - Buildings $3,000 Supplies Expense $2,280 Salaries Expense $150,000 Interest Expense $750 Total Expenses Net Income $12,500 $15,000 $60,000 $10,000 $750 $171,250 $188,950

$7,000 $100,000 $20,200 $40,000 $20,200 DENVER ARCHITECTS, INC. Statement of Retained Earnings For Year Ended December 31, 2018 Retained Earnings - Beginning Balance Add: Net Income $188,950 Less: Dividends $40,000 Net increase in retained earnings Retained Earnings - Ending Balance $360,000 Salaries Payable Capital Stock Retained Earnings Dividends Service Revenue Insurance Expense Rent Expense Advertising Expense Dep. Exp. - Equipment Dep. Exp. - Buildings Supplies Expense Salaries Expense Interest Expense Interest Revenue Totals [Ref: Income Statement] $ 148,950 $169,150 $1,920 $9,600 $1,200 $2,500 $3,000 $2,280 $150,000 $750 $200 $585,650 $585,650

$60,000 $10,000 $750 $7,000 $77,750 DENVER ARCHITECTS, INC. Balance Sheet December 31, 2018 Assets Liabilities & Shareholders' Equity Current Assets: Current Liabilities: Cash $90,000 Accounts Payable Accounts Receivable $20,000 Notes Payable Interest Receivable $200 Interest Payable Note Receivable $4,000 Salaries Payable Prepaid Insurance $960 Total Liabilities Prepaid Rent $2,400 Supplies on Hand $600 Total Current Assets $118,160 Shareholders' Equity: Property, plant and Equipment: Capital Stock $100,000 $56,240 Retained Earnings $169,150 Buildings $140,000 Shareholders' Equity Equipment $60,000 $256,240 Accumulated Dep. - Buildings $15,000 Accumulated Dep. - Equipment $12,500 Property, Plant and Equipment, Net $228,740 Total Assets $346,900 Total Liabilities & Shareholders' equity Land [Ref: Statement of Retained Earnings] $269,150 $346,900

d) Closing Entries: Closing entries are those entries recorded at the last day of reporting period to close revenue and expense accounts to retained earnings using a temperary account called income summary. When closing entries are recorded for revenues, Income Summary account shall be credited and Revenue accounts shall be debited; Similarly, when closing entries are recorded for expenses, Income Summary account shall be debited and Expense accounts shall be credited. Finally, balance in Income Summary account will represent either Net income or Net loss for the reporting period which shall be closed to Retained Earnings. Therefore, it is clear that dividends account shall be closed to retained earnings whereas other balance sheet related accounts shall not be closed. As a result, ledger accounts of balance sheet items such as assets, liabilities and shareholders' equity only will have ending balance. Balance in both revenue and expense accounts would be zero after recording closing entries.

CREDIT DATE Dec. 31 DEBIT $360,000 $200 $360,200 Dec. 31 $171,250 ACCOUNT TITLES AND EXPLANATION Service Revenue Interest Revenue Income Summary (To zero out revenue accounts) Income Summary Insurance Expense Rent Expense Advertising Expense Dep. Exp. - Equipment Dep. Exp. - Buildings Supplies Expense Salaries Expense Interest Expense |(To zero out expense accounts) Income Summary Retained Earnings (To transfer profit to Retained Earnings) Retained Earnings Dividends (To close dividends to Retained Earnings) $1,920 $9,600 $1,200 $2,500 $3,000 $2,280 $150,000 $750 Dec. 31 $188,950 [Ref: Income Statement] $188,950 Dec. 31 $40,000 $40,000

Credit DENVER ARCHITECTS, INC. Post-Closing Trial Balance December 31, 2018 Account Titles Debit Cash $90,000 Accounts Receivable $20,000 Interest Receivable $200 Note Receivable $4,000 Prepaid Insurance $960 Prepaid Rent $2,400 Supplies on Hand $600 Equipment $60,000 Accumulated Dep. - Equipment Buildings $140,000 Accumulated Dep. - Buildings Land $56,240 Accounts Payable Notes Payable Interest Payable Salaries Payable Capital Stock Retained Earnings Totals $374,400 $12,500 $15,000 $60,000 $10,000 $750 $7,000 $100,000 $169,150 [Ref: Statement of Retained Earnings] $374,400